Deed of Trust and Tax Implications

[cedar]

Firstly, could someone please explain a deed of trust between properties owned personally and limited companies.

Secondly, if I wanted to deed of trust a personal property to my ltd company what are the tax implications?

Can anyone help??:confused:

[jeffrey]

Please explain a deed of trust between properties owned personally and limited companies.
1. Trust means that there is a potential difference between:
a. the person who holds legal estate ("trustee"); and
b. the person for whose benefit it is held ("beneficiary").

2. Company is a separate legal entity from whoever forms it. Shareholder or member is not a beneficiary as such but does have part-ownership of the company.

3. Please explain the aim of your question, if you need a more precise answer.

[King_Maker]

Such a gift to a company controlled by you could trigger a CGT and SDLT liability.

Unless you are trying to shelter a lot of rental profit, it is unlikely to make financial sense - although you may non-financial reason(s).

Have you discussed this with your accountant?

[cedar]

Hi Jeffrey,

There is a motive to the madness!

We have always bought our properties through the Ltd company, but at present, lending is extremely difficult to find for ltd companies and the benefits are just not viable. So we have switched to purchasing properties personally, which have given us better rates and funding. The biggest problem is that the ltd company still needs to function (ie: we have overheads etc) but without being able to purchase, the company isn't generating enough income to operate, so my train of thought was to deed one or two personal properties over to the ltd company, so the ltd company can take advantage of the asset, profit etc. Which means it can still operate in this difficult climate as a temporary measure.

Firstly, I am not sure if it can be done and secondly can the same tax advantages apply??

[cedar]

Hi King Maker,

Thanksfor your info. I haven't really run it past my accountant properly, but equally he is not really that knowledgable about deeds of trust. I think it would be better if I found an accountant I can work with who has experience of this!

[jeffrey]

Firstly, I am not sure if it can be done and secondly can the same tax advantages apply?
Yes, it can be done- but now verify whether it would cause tax problems.

[cedar]

Hi Jeffrey,

Obviously as a ltd company the CGT threshold is far greater then the personal threshold. So would the liability be with the company for CGT or to us personally.

Or could we pay money into the company as a Directors Loan, so we can bolster the companies funds but still be able to recover that at some point, should we need to.

Thanks

[King_Maker]

I assume there is nothing in your current (personal) mortgage deeds which prevent an assignment etc?

Have you considered the company taking over the management of your personal properties for an appropriate fee?

[Telometer]

You seem to be trying to make things very complicated for yourselves, for no good reason whatsoever - and you're already somewhat confused which doesn't help; no wonder your accountant "doesn't seem very experienced."


Obviously as a ltd company the CGT threshold is far greater then the personal threshold.

Eh? A company has no CGT threshold - (in fact, being pedantic, companies don't pay CGT, they pay corporation tax on chargeable gains).


So would the liability be with the company for CGT or to us personally.

If you are making a disposal, personally, then you have any CGT liability.



To be honest, I'm not sure that you can create a trust in the first place. Why on earth would you gift something to your company? Answer: because you expect a commercial return. Following CIR v Plummer, it is clear that the courts require there to be an element of "bounty" in order to create a trust. You have a purely commercial situation; there probably would not be any bounty, so no trust.

If you put the property into the co by way of trust, wouldn't you be back to the same problem with the banks anyway? They'd now be lending to the co, as beneficiary of the trust.


Or could we pay money into the company as a Directors Loan, so we can bolster the companies funds but still be able to recover that at some point, should we need to.

Much simpler! Remember, if you charge interest, the company gets tax relief at 0%/19%; you as individuals will probably be taxed at 40%.

[mazzster]

I don't really understand what you're trying to achieve.

As I understand it, your company currently has overheads, but no/insufficient income to pay these overheads, so you want to give a money generating asset to the company?

All seems a bit weird to me. You're also completely incorrect regarding the company paying less CGT than you personally. As an individual, you pay CGT at 18%, and benefit from (broadly speaking) the first £10,000 tax free. If the gain arises in a company, it will probably be taxed at 21% or so, with no annual exemption. The funds are then held inside the company, and if you wish to distribute them to you personally, you will be taxed on the money again.

I would therefore strongly recommend keeping the properties in your own name, and lending money to the company (as Telometer points out it is probably best not to charge interest on this, as you will probably increase your overall tax liability, unless your personal income is low).

[cedar]

Thank you everyone for your advice and comments, very informative.

We agree, it is probably best to keep our personal properties totally seperate and to inject cash into the ltd company by way of either a directors loan or even pay the company a management fee.

Sorry everything sounded so confusing, but as you can see we were confused, as we have had lots of conflicting advice from other property developers etc from other sites, but was recommend to use this site as it was more factual.

Once again thank you!

[Telometer]

There's no substitute for paid advice...

If your company is making tax losses, and your individual properties are making taxable profits, then a management fee is a good idea - it will use up tax losses in the company, and reduce your own tax bill. You'd need to be certain that the rate was fair though, and to get the paperwork right.

Note the management fee will (almost certainly) give rise to *trading* profits, not schedule A (property), in the company.

[OneTwo]

Advanced apologies to all the posters on this thread if I have this wrong but I am reading cedars post slightly differently. I have found the posts ambiguous and would appreciate some clarity for my own education.

cedar

You seem to be asking if you can buy a property in your own name (easier to get personal loans) and then put any earned income through a limited company. If yes then:

My understanding is you can by means of a Trust deed. All earned income will be taxed at company rates.


I know this is possible if you set it up going forward but you appear to be asking if you can use your existing company. So my question is:

Can cedar use his/her existing company to put earned income from future properties purchased in his/her own name by means of a Trust Deed?


Please ignore this post if I have had an idiot moment and completely misunderstood your intention.

Good luck.

[cedar]

OneTwo,

You are totally correct, in what i was trying to explain!